This article originally appeared on The DIV-Net July 6, 2009.
Linked here is a detailed quantitative analysis of Chubb Corp. (CB). Below are some highlights from the above linked analysis:
Company Description: Chubb Corp. is one of the largest U.S. property-casualty insurers, Chubb has carved out a number of niches, including high-end personal lines and specialty liability lines coverage.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
CB is trading at a discount to 1.) and 4.) above. CB is trading at a 10.1% discount to its calculated fair value of $43.18. CB earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
CB earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. CB earned a Star as a result of its most recent Debt to Total Capital being less than 45%. CB earned a Star for having an acceptable score in at least two of the four Key Metrics measured. CB has paid a cash dividend to shareholders every year since 1902 and has increased its dividend payments for 45 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to > MMA
CB earned a Star in this section for its NPV MMA Diff. of the $739. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CB has. If CB grows its dividend at 6.1% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 4.06%. CB earned a check for the Key Metric ‘Years to >MMA’ since its 3 years is less than the 5 year target.
Other: CB is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. CB is a well-managed company that has exhibited sound capital and risk management practices and offers an attractive mix of products. Given its strong balance sheet, CB should command a premium compared to its peers. Risks include a prolonged economic slowdown, competitive pricing pressures and exposure to catastrophe and professional liability claims.
Conclusion: CB earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks CB as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $43.18 before CB’s NPV MMA Differential fell to the $500 that I like to see for a stock with 45 consecutive years of dividend increases. At that price the stock would yield 3.24%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.0%. This dividend growth rate is below the 6.1% used in this analysis, thus providing a margin of safety. CB has a risk rating of 1.75 which classifies it as a medium risk stock.
If I were not over-allocated in the financial services sector, CB would be a stock I would give strong consideration to. It is trading below its buy price of $43.18 and its 3.61% dividend yield would provide excellent near-term cash flow. My one concern is that free cash flow per share peaked in 2004 and has been on a steady decline ever since. For additional information, including the stock’s dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in CB (0.0% of my Income Portfolio).
What are your thoughts on CB?